Former Obama advisor argues Comcast is a threat to the open Internet

Yet other sectors of the Internet economy are working better than she admits.

Susan Crawford, a visiting professor at Harvard and a former advisor to President Obama, was not a fan of Comcast's acquisition of NBC Universal. In fact, Crawford was so appalled by the transaction that she made the fight over the merger the focus of her book, Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.

But Crawford's beef isn't only with Comcast. She sees the cable giant's growing size as a symptom of much larger problems with the telecommunications, media, and technology sectors. In her view, these communications industries fester with monopolies, collusion, and consumer-hostile business practices. A few big companies—AT&T, Verizon, Comcast, Time Warner, Apple, Google, and Microsoft—"tacitly cooperate by carving out their separate areas of expertise," leaving customers with low quality and high prices.

Crawford's skepticism of the Comcast deal is well-founded, but her broader critique of the modern media landscape misses the mark. The sorry state of the residential broadband market is a genuine problem that calls for creative policy solutions, but the wireless, media, and online sectors of the economy are more competitive—and more consumer-friendly—than she admits.

Crawford's over-diagnosis of what's wrong with the modern communications sector leads her to go overboard with her policy proposals. Rather than advocating a focus on constraining the power of broadband duopolists, she calls for a broad increase in government involvement in the communications industry. That approach didn't work very well the last time we tried it in the mid-20th Century. And it would likely work even worse today.

Monopolies everywhere?

A careful reading of Captive Audience gives some hints the industry's major incumbent firms might not be as omnipotent, or as collusive, as Crawford claims. At one point, for example, she describes how programmers like Disney and News Corp. "mercilessly gouged" AT&T and Verizon when they were trying to put together video packages to deliver over their FiOS and U-Verse networks. In another, she describes how cable companies are "slowly losing market share in video," thanks to increased competition from Verizon, AT&T, Dish, and DirecTV. This is not a story of wink-and-nod collusion among the captains of the media industry. Rather, it's a story of big companies fiercely jockeying for position in a rapidly changing marketplace.

Crawford's pessimism is particularly unconvincing in the wireless market. In 2003, she writes, "Americans were left with just three large wireless providers"—Verizon, Cingular, and AT&T Wireless. These three companies controlled about 60 percent of the market, with the other 40 percent controlled by "Sprint PCS, T-Mobile, Nextel Communications, Alltel, and others." In other words, we were "left with" at least seven competitors, not three. That's pretty good for such a capital-intensive industry.

Of course, the market has consolidated somewhat since then. We now have four national carriers. The feds were wise to block AT&T from acquiring T-Mobile. But a market with three or four major carriers is the norm across the industrialized world. And it's certainly not, as Crawford describes it, "in some ways...even less competitive than the wired market." The typical wireless consumer has three or four options, whereas wired customers are lucky to have two choices.

And Crawford's inclusion of Google, Apple, and Microsoft on her list of companies "tacitly cooperating" to carve up the market among themselves is even less plausible. Each of these three companies is pouring billions of dollars into their operating systems, mobile devices, search engines, and other products. It's hard to see any major problems requiring the attention of regulators.

The problem with the communications industry, in other words, is not a problem with "bigness" in general. Apple, Microsoft, Disney, and News Corp. are "big" companies, but consumers who are dissatisfied with their products have plenty of alternatives. Rather, the problem is that the structure of the residential broadband market makes it more prone to monopoly than other parts of the Internet economy.

The third way

Over our history, the United States has taken three different approaches to telecommunications regulation. Before 1968, policymakers took for granted that communications was a monopoly service, and they regulated it as a vertically integrated public utility. Between 1968 and 1996, regulators focused on fostering competition by discouraging vertical integration. They broke up AT&T and regulated the Baby Bells to prevent them from killing off startups like MCI and AOL. Since Congress passed the 1996 Telecommunications Act, policymakers have abandoned these pro-competitive policies, allowing the incumbents to consolidate and squeeze out smaller firms.

Crawford advocates a return to the first of these three approaches. During the New Deal era, she says approvingly, the FCC "was given the job of providing America with a high-quality, general-purpose communications system at reasonable rates. For fifty years, the state oversaw the development of phone service." It's true that the regulations of the mid-20th Century helped promote universal and affordable telephone service. But granting AT&T a telecommunications monopoly also produced a half-century of technological stagnation.

Crawford's framing of the debate—between the pro-regulatory stance of the 1930s and the anti-regulatory stance of the 2000s—ignores a third option: the pro-competitive policies of the 1970s.

In 1968, the FCC forced AT&T to allow third parties to attach devices to the network, creating a market for answering machines, cordless phones, modems, and much more. In the 1970s, the FCC allowed MCI to enter the long distance market. And in 1974, the Ford administration began antitrust proceedings that would lead to the monopolist's breakup in 1984. The result was flourishing markets for long distance service, answering machines, cordless phones, and online services. And crucially, the FCC avoided heavily regulating these relatively competitive markets, resulting in a rapid pace of innovation.

In other words, the key principle of the 1970s reforms was that monopolies should be regulated while competitive markets should not be. And this is a principle neither Crawford nor modern conservatives seem to understand. Crawford seems to regard the competitive sectors of today's economy as just as dysfunctional, and in need of regulation, as the monopolistic sectors. Conservatives make the opposite mistake, reflexively opposing regulation no matter how concentrated an industry becomes.

The result has been a stale and counterproductive debate between "free markets" and "regulation." The key question is not whether regulation is needed, but what kind of regulation is needed in which sectors of the economy. History suggests regulators should regulate when doing so is necessary to constrain monopolies and promote competition. In particular, they should limit the size of monopolistic firms and prevent them from vertically integrating into competitive markets. But it's equally important for regulators to avoid excessive meddling in markets like the modern wireless sector where there is already robust competition.

An important advantage of a policy agenda that's pro-competitive, rather than pro- or anti-regulatory, is it has a better chance of attracting broad bipartisan support. Crawford's sweeping indictment of big business is unlikely to find a sympathetic ear among conservatives or libertarians. Indeed, Crawford herself acknowledges this, arguing "America needs more people who can calmly and rationally oppose the free-marketeer rhetoric." But "free-marketeer rhetoric" is too popular among American voters for an explicitly anti-market movement to gain traction.

The political right may be more receptive to a regulatory agenda focused on constraining companies, like Comcast, who enjoy monopoly power thanks to state-granted franchise agreements. During the 1970s and early 1980s, pro-competitive telecommunications policies enjoyed support across the political spectrum. It was the Republican Ford administration that launched the antitrust case against AT&T, and the Republican Reagan administration presided over the firm's breakup a decade later. There's no reason a regulatory agenda that is pro-competition, rather than merely anti-market, couldn't attract broad support in the future.

Timothy B. Lee
Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times. Emailtimothy.lee@arstechnica.com//Twitter@binarybits

but the wireless, media, and online sectors of the economy are more competitive—and more consumer-friendly—than she admits.

Uh, I'm not sure I buy that. Assuming by wireless you mean cellular carriers, competition in that space is non-existent. Media is also dominated by a few large conglomerates and consumer choice is pretty limited. Not sure what you meanm by Online. If you mean companies that provide some service via online, that probably is the only space where there is healthy competition

There's no reason a regulatory agenda that is pro-competition, rather than merely anti-market, couldn't attract broad support in the future.

You're kidding, right? The hard-right of the Republican party frames any regulation as being anti-market. You refered to the blocking of the AT&R merger with T-Mobile as an example of pro-competitive regulation, but the Heartland Foundation sees it as needless "government meddling".

There's no reason a regulatory agenda that is pro-competition, rather than merely anti-market, couldn't attract broad support in the future.

You're kidding, right? The hard-right of the Republican party frames any regulation as being anti-market. You refered to the blocking of the AT&R merger with T-Mobile as an example of pro-competitive regulation, but the Heartland Foundation sees it as needless "government meddling".

I don't think that "broad support" necessitates the support of small radical splinter factions that lack relevancy.

Hmm. I have only one actual option for cable/internet, and it's been that way across four markets in four different cities for my entire adult life. Right now, Comcast is the only line into my building. In LA it was Time Warner. That's a de facto monopoly, even if AT&T, Verizon, and other exist. I can not access their offers.

Also, looking at wireless, there are multiple carriers, but trying to get a phone that is in any way attractive and at a decent rate pretty much requires a slew of contractual obligations and lock-in.

In both markets, not accepting a 2 year agreement requires a serious increase in cost. Providers of service can also raise rates without much recourse from subscribers.

So, I have few or no real choices, lock-in provided by onerous non-contractual rates, and little control over increasing rates even during the course of a contract, and this equates to consumer friendly competitive markets?

The author may be overreaching, but stating our telecommunications are in any way competitive or consumer friendly lacks credulity.

Wasn't there are article a few months back that showed in area's of increased competition consumers got a worse deal because the companies didn't have the resources to to make better offerings

There is a market condition called a "natural monopoly" in which one firm can do a better job of serving the market than two or more competitors. It is usually very capital-intensive (such as a gas utility or police department) and tightly regulated.

Although it makes sense to only have one gas delivery company in a city, you can still give consumers choice over "which gas" they want to buy. In reality the utility buys from sources in the proportions dictated by consumer elections, mixes it all together, and delivers it.

Cable and phone each used to be natural monopolies, but now they compete with each other in the broadband market. This (plus satellite) is a good development, but still not quite a healthy level of competition. Part of the problem is that cable, phone, and satellite companies all provide nearly identical service but each operates in a completely different regulatory space.

The argument in this article seems a bit flawed because a lack of national monopoly does no mean that there aren't local monopolies that engage heavily in price discrimination.

Also comparing the Republicans of the Ford administration to the Republicans of today is misleading. Even the Reagan administration's supporters were fairly different from current republicans. Neoconservatism was nascent under the Reagan administration, and now it is fully malformed (funnily enough, by local monopolies destroying competition among the parties).

My big takeaway was "look, past mismanaged and weak regulation failed, therefore, stronger regulation in the future will also fail".

For broadband in this country to keep pace with the rest of the world, either the whole mess gets heavily regulated or the last mile gets heavily regulated. The end goal is a big dumb pipe, anything else is going to heavily marginalize the true innovators (and they're the ones that really need a "free market", not the telcos and cable companies).

Cable and phone each used to be natural monopolies, but now they compete with each other in the broadband market. This (plus satellite) is a good development, but still not quite a healthy level of competition. Part of the problem is that cable, phone, and satellite companies all provide nearly identical service but each operates in a completely different regulatory space.

I'm not sure where you live, but technical limitations here in the US are pointing to a cable monopoly in areas where the telcos are not investing in fiber.

I'm going to assume you've never used satellite if you're equating it with cable/dsl/fiber.

In the northeast US those three choices you mentioned tend to be quite different as far as the level of service:

-Satellite: not practical in urban areas, expensive everywhere, and very extreme caps on data usage-DSL: Old and slow, max speeds of maybe 7Mb/s down, maybe if you're very lucky, 1Mb/s up, pricing comparable to cable-Cable: Quality varies widely, but most plans start at 10Mb/s down and 1Mb/s up with packages widely available that offer 50Mb/s down, 5Mb/s up with prices competitive with DSL (as long as you buy the video bundle!)

If you think those all feel the same for streaming video, playing online games, etc. I suggest test-driving each type of connection.

Personally I feel that we need revamped definitions for "ownership" that attract and encourage competition. No cable or telephone company owns my home wiring yet once it hits the curb it's claimed and monopolized. The same applies to any town or city. We need options and not just the a choice between Telco or CableCo. then we're simply exchanging one monopoly for another - thus the term duopoly.

I've read reports on OpenAccess. This is where different service providers can provide you a variety of services. Some sell just the connection, they focus on making it as fast and reliable as possible and provide no other service - no email, no hosted web page, it's just the connection. The reports show these players provide higher speeds and lower prices because they have a narrow focus and commodity sells. Other players like Comcast or AT&T sell a slower connection, sell television and phone and web hosting and email and a plethora of stuff that people think they need and those prices reflect it and then some, and some more every few months as the rates perpetually rise.

I don't need the broadband bloatware that comes from Comcast or their like. I simply want the connection and yet that doesn't exist because of laxed regulation. A little regulation and a lot of competition would do broadband and media consumers good. Compete at the edge (not the end point) and make the lines between that edge and consumer a commodity. I wouldn't mind seeing a company like JCom come in and break out the costly bundles and sell just the pieces some consumers actually want to buy but can't with the duopoly market.

I've read reports on OpenAccess. This is where different service providers can provide you a variety of services. Some sell just the connection, they focus on making it as fast and reliable as possible and provide no other service - no email, no hosted web page, it's just the connection.

It makes me wish Portland, Oregon had won their lawsuit to require AT&T Broadband to allow open access.

AT&T was buying TCI Cable, and the local Cable Franchise board tried to require Open Access due to TCI having a natural monopoly on cable service in the city/county.

The argument in this article seems a bit flawed because a lack of national monopoly does no mean that there aren't local monopolies that engage heavily in price discrimination.

Also comparing the Republicans of the Ford administration to the Republicans of today is misleading. Even the Reagan administration's supporters were fairly different from current republicans. Neoconservatism was nascent under the Reagan administration, and now it is fully malformed (funnily enough, by local monopolies destroying competition among the parties).

In fact, we are PAST neoconservatism now. Neoconservatism hit a peak and the Republican party double-downed on extremist rhetoric and decisions in the form of the "Tea Party"

Apparently Verizon and AT&T with very weak competition from T-Mobile and Sprint, and varying local focused start ups of COMPLETELY varying coverage and technological development constitutes robust competition.

Bengie25 wrote:

Thisismyarsname wrote:

MatthewSleeman wrote:

Wasn't there are article a few months back that showed in area's of increased competition consumers got a worse deal because the companies didn't have the resources to to make better offerings

This is all I could find, which is the exact opposite. Municipal competition led to private providers selling services below cost.

Cable and phone each used to be natural monopolies, but now they compete with each other in the broadband market. This (plus satellite) is a good development, but still not quite a healthy level of competition. Part of the problem is that cable, phone, and satellite companies all provide nearly identical service but each operates in a completely different regulatory space.

I'm not sure where you live, but technical limitations here in the US are pointing to a cable monopoly in areas where the telcos are not investing in fiber.

I'm going to assume you've never used satellite if you're equating it with cable/dsl/fiber.

In the northeast US those three choices you mentioned tend to be quite different as far as the level of service:

-Satellite: not practical in urban areas, expensive everywhere, and very extreme caps on data usage-DSL: Old and slow, max speeds of maybe 7Mb/s down, maybe if you're very lucky, 1Mb/s up, pricing comparable to cable-Cable: Quality varies widely, but most plans start at 10Mb/s down and 1Mb/s up with packages widely available that offer 50Mb/s down, 5Mb/s up with prices competitive with DSL (as long as you buy the video bundle!)

If you think those all feel the same for streaming video, playing online games, etc. I suggest test-driving each type of connection.

Good catch on the service tier issue, though I haven't had DSL for about seven years now. By "nearly identical" I just meant dumb pipes, obviously there are issues with different service levels not being available everywhere.

An open access natural monopoly for fiber seems like a decent solution, but it could descend into the same customer service hell that other natural monopolies call home.

Susan Crawford's book may or may not have good policy prescriptions, but to say there's robust competition in the US for fixed internet (cable, DSL, satellite) or wireless (Voice, 3G/LTE), or pay TV is being willfully blind... (And to have that printed in Ars to a tech-savvy audience, is even more bizarro.)

Earth to Tim: they are all geographic or spectrum-based monopolies (in the US -- and Canada).

What percent of the population has any choice between cable providers? ZERO. They're all municipal monopolies. (Please don't mention satellite TV with their extra-charge dish install & web latency.)

How many people can buy an unlocked iPhone 5, and choose between competitive rate plans? NONE. Any unlocked phone (including iPhones) don't work on other carriers because of spectrum controls; GSM, CDMA and incompatible LTE bands (unlike Europe, where you can buy any unlocked phone and choose the best deal between 3-5 carriers in all EC countries). Fine, T-Mobile just started to offer HSPA+ service to iPhones after re-farming some spectrum as a payout from the AT&T fallout, but that's small fry.

Do you know what would happen to cable-TV pricing if cable companies were forced to compete? Or when a 40-band LTE chip is dropped into an iPhone 5S/6. Price competition. Finally.

Right now, consumers are getting slow internet and no-discount smartphone bundles with 2-yr lock-ins...Comcast & AT&T et al. are laughing all the way to the bank, with billions in profit every year. (Btw, I saw a study saying that the wholesale cost for ISPs is 1¢/gigabyte -- while for 3G data, it's probably ~$1/gigabyte, and LTE, being more efficient, is 50¢/gigabyte.)

In her view, these communications industries fester with monopolies, collusion, and consumer-hostile business practices.

Yeah. All we've got to figure out is how to deny consumers the ability to vote with their dollars!

I'm not sure if this is sarcasm.

However, Comcast has successfully denied me the ability to vote with my dollars. I can either have acceptable service at incredibly high prices, or I can read a book.I do not have an option for DSL at my address because of the wiring in my apartment.I used to have WIFI broadband through Clear, but there's so much interference here they ended up refunding the money I'd spent on a subscription with them.

There's another player (they have a green font), but they told me I had to have TV+phone to get internet, and I have neither.

'Planet Money' did an interesting piece recently on how car dealerships have finagled their way into having laws written that protect them so that they can add about $1800 per car. The cable companies have pretty much done the same thing. This has been done in pretty much every jurisdiction from Mississippi to Vermont so this is not simply a partisan issue.

"more consumer-friendly"One is curious how 6 Strikes is more consumer friendly.Allegations made by a company that created "copyright infringement" (is it really infringement when the content holders hire someone to create the opportunity?) being accepted as fact. A system to appeal the allegations that is one sided and ignores reality in favor of expansion of corporate rights.Directing consumers to "legal" alternatives where VOD offerings by the media cartels get top billing, and highly limited "purchase" alternatives where the content holders have extra rights over how, where, when, how often you might be allowed to watch content you "purchased".Complaints about investigations into billing practices and limits, explaining them away with "bandwidth hogs" having to share nicely with everyone then admitting it was just a stunt to protect income and not invest in infrastructure with the handouts they get to do just that.Pressuring local governments to pass bills banning cities, tired of being ignored, from creating competition in the market for the benefit of consumers.Suddenly being able to offer more bandwidth and lower prices to consumers not because they wanted to but because Google rolled out fiber and they fear people will leave them.Carving up large portions of the country to each provider, creating monopolies. Getting cities to grant them monopolies with promises of a chicken in every pot and "donations" in every greasy palm.Combining content, news, and delivery into 1 business with no questions about if what they are doing is actually bad for consumers. Providing 1 sided "news" reporting with a slant to protect the corporations desires.

We might have a difference of opinion of what consumer-friendly actually is.

Ehhhhhh, Tim, I think you've missed the main point, which is that CORPORATE AMERICA LITERALLY OWNS CONGRESS. It isn't even about rational policy decisions or etc. You're right of course, these big companies aren't just some monolithic Fascist corpratocracy, yet at least. The issue isn't trivia about regulating this or that market or if this or that one corporate acquisition is going too far. The OWNERSHIP of these corportions is heavily concentrated. More and more they just demarcate turf and make non-aggression pacts, like Comcast and Verizon, who clearly don't WANT to compete even though they are poised to do so. Why would the people who own both of them WANT that competition, it wouldn't be good for them.

Things like wireline provider duopoly is only a symptom. The disease is MUCH bigger.

I think I am with those who tend to disagree with aspects of this article. I could see more of a two axis issue where there is media on one axis and then on the other the distribution services. I think the media area has been showing recently that it is more than willing to fight to cut down distribution of content (not to suggest that copyright laws should be circumvented), but that is just how it can flex their power. There have been very public fights about the cost for services between media and the pipe distributors that have impacted consumers negatively IMO. These costs inevitably get passed along to the consumer though, so the part about Disney getting more for their content seems to minimize the impact on the consumer (I may have misread as I skimmed).

I see there being quite a bit of power within the current system for the distributors too. I mean, ATT had the ability to leverage $39 billion dollars to buy out T-mobile, but I have yet to see them role out their services efficiently for either HSPA+/LTE broadly that this money could buy. I think in November they said they were going to spend $14 billion to start doing this!? Why has it taken so long? IF they really desired to build a better network they could have easily lobbied our legislature to relax some of the issues with changing switches I would imagine to modernize the infrastructure.

Might it also be good if they were to break apart the wireless divisions of these companies and the landbased services of these companies to create more competition? I mean, I cannot imagine Verizon and ATT sees as much investment in fiber services when they can create larger LTE markets (though I know towers do need wires run to them...but not necessarily to houses). In reality, I think what really shows how much the pipe system is broken now is how Kansas City with Google fiber is generally envied because it is a big company providing a service which people see as highly valuable. If what Google is doing is delivering the services at cost (though it may not be), built out from the ground up, and their prices are lower than what I would pay generally for my services now that have already existing infrastructure in place, where is the extra money going? I am sure if there was a survey done as to who would desire this, especially in geographically dense areas, there would be a financial incentive to do so. I believe when I have read in the past that municipalities have done this infrastructure development, they are often fought by the major pipe company for that location.

Personally I see problems with each of these axes currently with the massive monopolies which dominate local markets and offer pseudo-competition that comes at the expense of consumers.

I agree that we should seek a market-based solution that obviates the need for regulation but to find the answer we need to look beyond the pre-Internet policies of the 1970’s and the 1990’s.

We have a techno-economic problem that stems from trying to fund our infrastructure by capturing the value of the content and services. This may have made sense 100 years ago but today it is failing because value is no longer created inside the network. As you note, the regulations have had the opposite of their intended effect by virtue of creating silos.

Rather than continuing to try to fund telecommunications as if they were railroads carrying freight we need an approach more suitable for roads and sidewalks that are owned and maintained by local communities. This would eliminate the need for the chokepoints that exist in an attempt to charge for content based on the false assumption that the number of bits are a measure of value.

Just as we own the wires in our homes, we and our neighbors need to own the wires around our home.

Monopolies need to be regulated. Cable companies are monopolies. They use a limited publicly-owned resource: public right-of-way along streets. Just like regulated electric utility services. That's where they hang and/or bury their cables. They have been granted the right to do so by the various municipalities that own that right of way, as a monopoly. In exchange, they are expected to provide a public service at a fair, regulated, non-extorsionist rate. That promise has been broken, for political reasons.

Wireless providers: same deal. The public airwaves are the limited publicly-owned resource. They didn't BUY spectrum, they licensed it. The FCC failed to properly regulate, for political reasons.

If either of these providers can figure out how to do what they do without using public resources, then they can forget regulation and more power to 'em. I don't see it happening.

No they aren't. Cable companies have 57% of the market for residential broadband services, but telcos are adding more customers every quarter for their fiber-based services than cable, 750K vs. 575K. (Source: Leichtman Research 3Q 2012.)

As soon as U-verse, FiOS, and CenturyLink's 40 Mbps services turn profitable, their service area will likely be expanded.

If the Google KC system is profitable, there's nothing stopping Google from expanding into new territories as well; They have the same automatic access to poles and ROWs that any telecom service has under the law.

Yes, where they "really" stand. Because the view from the ground that they suck (well, except compared to Canada maybe) is just delusion.

Also, this aspect of your site says more about what a crappy org ITIF is than your articles:

Quote:

Your browser has Do Not Track enabled.

This means that your browser is requesting that this website not track your online activity. We have rejected your request.

On *every* page load too. What a cheezy way to push an agenda. Since you're rejecting my request, how about you store that you've shown me that message in a cookie? Or does your organization perhaps not really understand technology that well?

I think I agree in principle, but maybe differ in proposed implementation.

The physical infrastructure for wired broadband is a natural monopoly, but the interconnection service offered over that infrastructure is not.* In light of that, I think the best option would be to create/enforce Open-access networks. I think the first step would be delamination. I think it's a far better way of creating "network neutrality"--utilizing market forces, as opposed to allowing but trying to regulate against the temptations inherent in vertical integration of the networks.

* This is true at least in the case of a (hierarchical) star topology for the network. I admit, I'm not sure what to do with the providers that use shared media infrastructure like the cable providers in the delamination / open access network scenario.

But it's equally important for regulators to avoid excessive meddling in markets like the modern wireless sector where there is already robust competition.

(emphasis mine)

I'm not sure whether I agree with the bolded part as a whole; I think the phone locking and bundling is a problem that should be solved. I'd prefer to see the wireless standards taken to complete interoperability, such that e.g. I could put a SIM card from any provider into a phone that I bought from any other provider, and it would work.

I'm not sure how technically feasible this is, though--so I'm interested to hear from anyone with expertise.